Tax Day in the USA is almost like a national holiday for the Internal Revenue Service (IRS). Imagine your birthday, Christmas and Easter all at once. Tax Day, dictates a deadline for self-assessed tax payments to be made by, to the IRS. This year, it falls on the 17th of April.
At the moment, cryptocurrency markets are still looking bleak, Bitcoin specifically stands at $6736.68, down 1.87% at the time of writing this piece. Therefore, heading in to Tax Day, things really aren’t looking that promising.
As we know the IRS are clamping down on the taxation of cryptocurrency assets in the wake of the 2017 and therefore the IRS are expecting many returns from people who benefited from the market boom. They have calculated that there is around $25billion worth of capital gains which are taxable within the USA. Bearing in mind the entire market cap of Bitcoin currently stands (at the time of writing) at $114,314,049,252, that’s quite a significant chunk of money.
Matthew Frankel has written a quick summary in ‘The Motley Fool’ which I believe describes the current situation for many cryptocurrency traders in the USA:
“Many people who made lots of money on cryptocurrencies in 2017 likely don’t have the cash on hand to cover their capital gains taxes, so they may need to sell additional cryptocurrency holdings in order to raise the cash to pay the IRS. Considering that the entire (worldwide) cryptocurrency market cap is currently $258 billion, the $25 billion in possible U.S. capital gains tax liability is a relatively large amount of money.”
Rightfully, Frankel describes that this isn’t the case for everyone and indeed, it is not but I also believe that many people will be finding themselves in a bit of a predicament leading up to next weeks deadline.
The key thing to take away from this is that if indeed Frankel is right, there will be a big sell off, of Bitcoin, and other cryptocurrencies very soon, with people frantically trying to raise the funds to cover their looming tax bill. Frankel refers to this as peak tax-related volatility.
Since it takes a few days for currencies to move through exchanges, many of these transactions may have already been established so the sell off could all happen at once. This may have quite a big impact on the value of cryptocurrencies, specifically with Bitcoin in mind. As Tax Day approaches, sell offs are expected to continue meaning that on the 17th of April, we could be looking at some quite devastating figures indeed.
If you find yourself in this situation or want some more information because you fear that you may owe some taxes, please do some further research as ultimately this does not apply to everyone, a lot of people however will be affected by this.
What is really going to happen?
This really is just speculation, perhaps most people actually have the funds to settle tax bills already, maybe others will try their luck and avoid paying altogether, although this is very risky and not recommended. Perhaps even no sell off will occur and as a result, the price of Bitcoin will take a big gain. We can’t really guess at this point unfortunately.